Rotherham, Barnsley and Doncaster Councils that the former Conservative government had given a 'clear, unequivocal promise' that no part of the£240m cost of the urban transport system would fall on local taxpayers.

He said the councils' enthusiasm for the project had been so great they 'irretrievably' committed themselves to Supertram before even starting negotiations with the government over how it would be funded.

Both the government and the councils had hoped the construction costs would be substantially offset by privatising the system on completion, but the government had never given any firm assurance it would foot the bill if that hope came to nothing.

Supertram, which opened in 1995, has been running at a loss and the judge said no private company had come forward who was willing to operate the system without subsidy, let alone pay for the privilege.

The judge's ruling means the people of South Yorkshire's council tax bills will be inflated for years to come by having to pay off the£115m 'shortfall' in the construction costs.

It has been estimated that each taxpayer will have to find an extra£40-a-year for the next 30 years to cover the debt.

Richard Mawrey QC, for the councils and the South Yorkshire Passenger

Transport Authority and Executive, said the case was of 'considerable

importance' to all concerned.

And the judge granted leave to appeal against his decision, observing: 'I understand there is a lot at stake here.'

The councils had claimed the government gave an irrevocable assurance in late 1990 that, whether or not Supertram was eventually privatised successfully, local taxpayers would not have to foot any substantial part of the construction costs.

Rotherham, Doncaster and Rotherham Councils in particular said they would never have backed Supertram if there had been any suspicion that their local taxpayers - who would never see a tram - would have to pay.

But the judge said the goverment letter relied on by the councils 'is not an unqualified assurance of anything.'

Both the councils and the government had simply 'taken it for granted' that much of the construction costs would be deferred by privatisation receipts which at one point were hoped to reach£75m.

The councils had never asked for any 'express assurance' that the government would cover any shortfall. 'They were content to assume that there would be no shortfall, or at least no significant shortfall,' said the judge.

It was also 'entirely inconsistent' with the evidence that the councils had ever believed any assurance had in fact been given, he added.

'The applicants committed themselves irretrievably to Supertram in January 1991 when they entered into binding contracts for the construction of the system and purchase of the rolling stock,' said the judge.

'Everyone expected at that time that, once completed, Supertram would operate at a profit, and that receipts of privatisation would be substantial.

'In the event, the system operated at a loss, and noone was willing to pay to take it over.

'Such was the applicants' confidence that the non-funded debt would be covered by the privatisation receipts, and so great was their enthusiasm for the project, that they committed themselves to it in January 1991, before negotiations with the government over the terms of funding had even begun.'

The councils had never obtained 'any assurance' from the government that local taxpayers would be protected if the privatisation receipts did not cover the shortfall, concluded the judge, dismissing the judicial review challenge.

Birmingham City Council has said there are no legal grounds for taking criminal or civil action after an independent review found former leader John Clancy (Lab) acted unlawfully when he independently reached an agreement to end the city’s long-running bin strike.

Councils with housing stock will be able to bid to the Treasury for an increase in borrowing on their housing revenue accounts “as soon as possible” and there will be no extra strings attached to the way these funds are used, LGC understands.

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